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HMRC internal manual

Company Taxation Manual

Distributions: general: transfers not at market value - to member who is an employee/director

CTA10/S1000(1) B and G

If a company transfers an asset at less than market value to an employee or director, the difference between the market value and the transfer price will be taxable on the recipient in some way. Normally this will be by way of a charge on the employee or director (see EIM21640 onwards).

However, if the employee/director is also a member, the tax treatment depends on whether that person acquired the asset in the capacity of:

  • an employee/director,


  • a member.

To be assessed as income from an office or employment the transfer of value must flow from the employment or office.

To be a distribution the employee/director must have received the asset in his or her capacity as a member (CTM15250).

In practice, there is likely to be little evidence definitely pointing to one or other of these alternatives.

The liability on the recipient of the asset would arise under Chapter 3 Part 4 ITTOIA05 for a member of the company and under the employment income provisions in ITEPA03 for an employee/director.

If you agree the employment income basis, CTA10/S1000(1) B or G will not apply. Advice on the NIC position is at NIM13000 onwards.

In some cases the transfer of the asset may be by way of compensation, for example for loss of office. In such a situation you should not regard the transfer as a distribution. Instead, the liability will be under the employment income provisions.

See BIM47110 for the position on trading income.

An employee or member may transfer an asset to a company at more than market value. In these circumstances see CTM15250 regarding treatment as a distribution and EIM21640 onwards regarding employment income treatment.